The midnight queues on Monday, however, will tell a different story, as dogged gamers wait in line for the biggest game of the year: Call of Duty: Modern Warfare 3 – a first-person shooter with scenes set in a war-riven Paris and London. Its high-octane action has led some to predict that the title is poised to become the best-selling console game of recent times.

The dichotomy reflects an industry in the midst of a complex transition. The high street is in crisis: market leader Game Group is losing money as the physical games business fell by 10% in the UK this year. Yet the $15bn-plus valuation put on the three-year-old Facebook game company Zynga, developers of Farmville, shows where future hopes lie.

What is happening is simple to describe. Piers Harding-Rolls, a games industry analyst with research firm Screen Digest, says: "In common with a lot of other media industries, we are seeing a shift from physical-based media to new digital opportunities that have really opened up how games are distributed to the public." In other words, where once a game meant a £40 purchase of a CD for a £200 console, it can now amount to a 79p payment for Angry Birds.

Nintendo's problems stem in part from its position in the technology lifecycle: the Wii, credited with bringing a whole new audience to gaming with its motion-sensing technology, is now five years old. With a next-generation Wii U out next year, Nintendo had bet on its glasses-free 3D handheld game, the 3DS, to bridge its financial gap, only to find that gamers did not much care for the distorting 3D or the price – which was initially £230 when launched in spring.

Last week Iwata was asked to reflect on the "bitter lesson" of what happened with the poorly performing 3DS – and the company boss did his best to deflect the comment. "Please let me refrain from mentioning what Nintendo regrets with the specifics of the Nintendo 3DS because I do not think the news reports on those matters will help to invigorate the market in the upcoming sales season," he said in a Q&A session translated and posted on the company's website.

He conceded that part of the problem was that Nintendo took too long to take into account young female consumers (addressed eventually with the launch of a "misty pink" version of the handheld) and the lack of the availability of its workhorse, Super Mario 3D Land, at launch. Because, Iwata said, "we failed to offer such a software title at launch" the firm could not counteract naysayers who said glasses-free 3D was "tiring on your eyes".

Handhelds remain dominant in Nintendo's Japan but the rise of the iPad and iPhone have transformed the European and US markets. With children happily seizing their parents' Apple products, consumers "have no compelling reason to buy a gaming device, in addition to the product they use every day," Harding-Rolls observes. Nintendo revenues are down from ¥1.8tn (£14.75bn) at the height of the Wii's popularity in 2009 to a forecast ¥790bn this year.

Addictive

Rovio's own data suggests that consumers are sufficiently diverted by the challenge of firing birds via a sling to spend 300m minutes a day on the game. No wonder that Rovio's chief marketing officer Peter Vesterbacka said last month that the "insanely profitable" firm might go public with a $1bn valuation next year.

Nintendo used to pride itself on its ability to increase the number of people who play games. In the past titles such as Wii Fit transformed the male teen-dominated image of the industry; now that accolade might belong to San Francisco-based Zynga, which has built its success with titles that people play for free on Facebook, paying only for upgrades to get them ahead in Farmville or Cityville.

Zynga, which is in the process of going public, has grown from a company with $19m in revenue in 2008 to $597m in 2010 and $829m in the first nine months of 2011, the last set of data available.

Amid such disruption, then, it will come as a relief that rapper Example and dance act Chase & Status will turning out for the launch of the latest console game Call of Duty: Modern Warfare 3. Michael Pachter, a games industry analyst, told the Guardian that he is forecasting that the Activision title, priced at £40 in the UK, will sell 24m units worldwide – and the similarly combative Battlefield 3 from rival Electronic Arts, which costs about £35, another 12m copies globally. While younger and female consumers may prefer casual games, there is a core audience for the best in gaming technology.

Helped by such on-screen violence, Screen Digest estimates that consumer spending on games in Europe will be down marginally on 2010 at €10.8bn. But as Nintendo's maiden loss shows, there is little doubt that the industry dynamics are changing. Not everybody who was previously successful will dominate the next level.